I spend most of my time digging into Wall Street, hedge funds and private equity firms, looking for both the good and the bad. I also focus on the intersection of business and the law. I have worked at Forbes since 2000.

Bank Of America's $16.65 Billion Settlement And The Last Dinosaur Of The Financial Crisis

Fourteen years ago, Angelo Mozilo, having built Countrywide Credit over three decades into one of the nation’s biggest sources of mortgage loans, was quoted in Forbes saying, “now I know … how the last dinosaur felt.”

Nearly six years after the collapse of Lehman Brothers, Bank of AmericaBank of America reached a $16.65 billion deal on Thursday to resolve federal government accusations that it had misled investors into buying cratering mortgage securities prior to the financial crisis. The government had previously reached a $13 billion deal with JPMorgan ChaseJPMorgan Chase and a $7 billion settlement with CitigroupCitigroup, but the Bank of America deal is the biggest ever and likely the last monster financial crisis-era settlement, resolving investigations federal prosecutors and state attorneys general have conducted from Manhattan to Los Angeles.

Most of the mortgage securities involved in the big Bank of America settlement were actually issued by Countrywide Financial before Mozilo sold the company to Bank of America in 2008.

“Countrywide’s improper securitization practices resulted in billions of dollars of losses to federally-insured financial institutions,” said Stephanie Yonekura, the acting U.S. Attorney in Los Angeles, in a statement. “For years, Countrywide and Bank of America unloaded toxic mortgage loans on the government sponsored enterprises Fannie MaeFannie Mae and Freddie MacFreddie Mac with false representations that the loans were quality investments,” said Preet Bharara, the U.S. Attorney in Manhattan, in a statement.

But despite all the huge legal settlements that the government has obtained against financial institutions for mortgage-related behavior leading to the financial crisis, a common criticism has been that very few individuals have been held accountable. Those who have been singled out by the government have not generally been viewed as the big players of the financial crisis era. How can a bank reach the biggest federal government settlement in history without people working at the institution being held responsible for the conduct?

The federal government appears to be working to a certain degree to deal with this contradiction. Bloomberg News has reported that federal prosecutors in Los Angeles are getting ready to launch civil lawsuits against Mozilo and as many as 10 other former Countrywide Financial employees. The federal government had previously given up trying to prosecute Mozilo. In 2010, Mozilo paid $67.5 million to resolve civil fraud charges from the Securities & Exchange Commission. “There is no sound or fair basis, in law or fact, to pursue any claim against Angelo Mozilo,” Mozilo’s lawyer, David Siegel, told Bloomberg News. Mozilo “stands virtually alone among banking and mortgage executives to actually have been pursued by this government before and already paid a record penalty.”

Still, The New York Times has revealed that Mozilo, who is now 75, might be suffering from health issues that could give federal prosecutors second-thoughts about waging a new legal campaign against him.

The Bank of America settlement documents, released by the government on Thursday, make numerous references to Mozilo’s emails and comments on various Countrywide mortgage products, referring to Mozilo as Countrywide’s chairman. “I am becoming increasingly concerned about the environment surrounding the borrowers who are utilizing the pay option loan and the price level of real estate in general but particularly relative to condos and specifically condos being purchased by speculators,” Mozilo wrote in an August 2005 email. “You should never put a non-owner occupied pay option Arm on the balance sheet. I know you have already done this but it is unacceptable.” In a September 2006 email, Mozilo called pay option adjustable rate mortgages “the lightening [sic] rod of ‘exotic loans.’”

Mozilo started out in the Bronx, working at his father’s butcher shop and getting into street fights. “I’m perceived as a tough guy, a son of a bitch,” he told Forbes in 2000. He might have one last big fight ahead of him—against the Department of Justice.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

No surprise here. Yet the notion of no one, not one individual going to jail for defrauding the U.S government i.e the people, is just something we should never stand for. I am one citizen with no real power to yield, if I even drive with a suspended license I’m thrown in jail. If I can’t pay my medical bills as a result of a disability my credit is shattered and yet these individuals live on a whole different spectrum of the American dream. I’m not bitter, I am just sadden how these things make the news yet never make a difference in how we the people demand true equal justice. I guess it’s all about who you know, and if you’re a little guy like me, well you best keep your mouth shut.

I am a conservative republican, and I agree with what you said. There is a complete and total disparity between the penalties for people who rob billions of dollars compared to the penalties for people who rob thousands of dollars.

Mozilo, and the rest of the banksters, are not “dinosaurs”. They are the asteroids who wiped out the dinosaurs.

The financial bailout gave nearly a trillion dollars to corrupt institutions who used part of the money to refurbish their offices and give bonuses to the very “talent” that crashed the economy in the first place.

These sociopaths are not practicing “free market capitalism”, because a free market depends in part on everyone knowing what they are buying. The banksters are practicing fraud enabled by complete disymmetry of information, deceptive practices, and outright fraud.

The rating agencies had a vested interest in NOT giving the banksters bad ratings. Furthermore, the banksters have rigged the system to ensure they get the profits from risky investments but others actually absorb the risk, through outrageous practices such as credit default swaps.

Then the government compounds the problem BY BAILING THESE SOCIOPATHS OUT with grandma’s taxes.

The sociopaths at the top pocketed billions, crashed the economy, and got bailed out, and now the companies get fines equivalent on 1 years profits.

The fines are a good start, but they won’t stop the next bubble fueled by fraud, moral hazard, and conflicts of interest. WHY HAS NO ONE GONE TO JAIL?

The game is rigged by the boys at the top, and recent laws do next to nothing to change that fact.

And BTW, I am a conservative republican, for what that is worth. No person who actually believes in capitalism could possibly be happy with current state of banking. Both democrats and republicans are complicit in the fraud.

A guy walks into a bank with a gun, and walks out with $5,000. He is likely to get caught and serve hard-time in Jail. A guy has a senior management position in a bank. After steeling a few Billion Dollars he may or may not decide to use his golden-parachute, and leave stock holders, holding the bag. It is unlikely he will go to jail, If he does, it will be a very nice ‘jail’ for a short period of time. Blue collar crime doesn’t pay. White collar crime pays very well.

Hold onto your hats folks – this may be far from over… From first-hand experience with my BoA mortgage, and from what I am hearing from others now – in fact my BoA Branch Manager admitted that they have gotten, “thousands of complaints about this”, in the last few weeks and months, WHILE BoA was negotiating this settlement with the DOJ, they began selling LOTS of mortgages that they would have had to pay-down principal on according to this settlement… They gave the Mortgagees no say in the sale their mortgages… They did this behind the scenes in the last few weeks and months that these negotiations were going on with the DOJ – keeping that pertinent information to the negotiations from the DOJ – violating the spirit of the agreement at its foundation, saving their butts billions in “Principal Reduction Payments” – required by this agreement, while leaving those struggling with the mortgages blowing in the wind… As one of those struggling Mortgagees, who would have been due a “Principal Reduction” by this agreement, I contacted the DOJ with my specifics yesterday… If your are one of the thousands of Mortgagees that would have been due a “Principal Reduction” under this agreement, had BoA not sold your mortgage to another lender in the last few weeks or months, PLEASE contact the DOJ TODAY!!!

Boy do I have questions for you. I was a countrywide then B Of A mortgage. Now they are foreclosing/short sale whatever comes first….I will end up with a HUGE deficit because they keep forcing us to lower the price. Does anyone know anything about the Debtors Forgiveness Act that is tied up in red tape in Congress. We have done everything the “right” way and have worked hard to do everything the bank wants us to do….